Your guide to tax compliance for side hustles
Side hustles have become a worldwide phenomenon and in Australia the rate of people holding multiple jobs has increased by 7 per cent in the last year, according to the Australian Bureau of Statistics (ABS). However, if you’re earning some extra cash through freelance work, driving for a ride-share service, or selling goods online, you need to be aware of the tax implications of your side hustle. This blog will be a helpful tool to guide you through the world of side hustle taxes, and we promise that when tax time rolls around, it won’t be as painful as you think it has to be. You’re already got off to a great start by finding yourself on this page.
Understand your tax obligations
The first step to take is to understand your tax obligations. Depending on your side hustle, you might need to get an Australian Business Number (ABN), register for Goods and Services Tax (GST), or Pay As You Go (PAYG) withholding. As part of your ABN registration you can also apply for GST, PAYG and your business name. Knowing whether your side hustle is a business, or a hobby is also essential. You can find more information about the characteristics of each here. If your side hustle is actually a side business, you’ll need to report your income and expenses on your tax return. So, let’s break this down.
What is an Australian Business Number (ABN) and do I need one?
An ABN is a unique 11-digit identifier that the Australian government uses to keep track of businesses for tax purposes. If you are just doing a few odd jobs here and there as a hobby, then you might not need an ABN. However, if you’re planning to make your side hustle an ongoing activity with the intention of making a profit, then you will need to register for an ABN. Registering for an ABN through the Australian Government’s Business Registration Service is free. Visit the Australian Business Register (ABR) website to find out about your entitlement to an ABN.
Do I need to register for GST?
You will only need to register for GST if your side hustle’s yearly turnover is $75,000 or more. If this is you, then you will be required to apply a 10% GST on top of your sales. Additionally, you will need to submit a Business Activity Statement (BAS). If your yearly turnover is less than $75,000 there are some situations where registration is mandatory, such as selling digital products or importing goods into Australia, so it is important to do your research and register for GST if you need.
What are PAYG instalments?
As the name suggests, Pay As You Go (PAYG) instalments is a convenient system that enables you to pay your tax directly to the ATO in regular instalments, usually on a quarterly basis, instead of one large sum at the end of the financial year. If you are just starting out in the business world but anticipate that you may turn a substantial profit, then it might be a good idea to voluntarily register for PAYG instalments and make tax payments during the year. This will basically act as forced savings so that you don’t end up out of pocket at the end of the year. Don’t stress too much though, the ATO will automatically enrol you in the PAYG instalments system if your business income exceeds a certain threshold and will remove you from the system if your income falls below this threshold.
Keep track of your income and expenses
Effective financial tracking is essential for managing your side hustle taxes. Accurate reporting of your income and claiming eligible tax deductions depends on maintaining proper financial records, including receipts, invoices, and other relevant documentation. We understand this is easier said than done, but we’re here to help. One idea to help you organise your finances is using cloud-based accounting software. Xero is a great option; it allows you to store your financial records securely in the cloud and access them from anywhere with an internet connection. It also offers automated bank feeds, expense tracking, and invoicing to help streamline your financial tracking process. At Ipsum, our team can assist you in keeping track of your income and expenses and help you implement finance software to ensure that you stay on top of your tax obligations.
Understand side hustle tax deductions
As a side hustler, you might be eligible for tax deductions on your tax return. Some common deductions include home office, internet and phone, travel, and equipment expenses. It’s important to keep records of all your costs and seek advice from a tax professional to determine which deductions you can claim. Claiming expenses can help lower your tax bill so it’s worth keeping your receipts and looking into what expenses you can and can’t claim. At Ipsum, we can also help to guide you through this process because it literally pays to keep a record of your expenses!
Be aware of deadlines
Make sure you’re aware of all the tax deadlines related to your side hustle. If you’re registered for GST, you’ll need to submit a Business Activity Statement (BAS) every quarter. If you have employees, you’ll need to report and pay their superannuation contributions on time. Staying on top of these deadlines can help you avoid penalties and fines. At Ipsum, we understand the importance of keeping on top of these dates; we won’t let these tax deadlines cramp your side hustle style.
Seek professional advice
Managing your side hustle taxes can be daunting and time-consuming. That’s why we recommend seeking professional advice. At Ipsum we are committed to making your side hustle journey stress-free by providing expert guidance on tax requirements and maximizing your deductions. We understand that when you’re just starting out, seeking financial help and tax guidance can seem overwhelming and expensive. However, getting the right advice early on can really help set you up for success in the long term.
If you’d like to learn more about how to become a tax-savvy side hustler, reach out to one of our friendly Ipsums.